What is Personal holding company tax?
In short
The personal holding company tax is a 20% penalty tax on the undistributed income of a closely held corporation that earns mainly passive income, discouraging owners from sheltering investment income in a corporation.
Key takeaways
- A corporation is closely held if 5 or fewer individuals own more than 50% of its stock during the last half of the year.
- The income test is met when at least 60% of adjusted ordinary gross income is passive, such as dividends, interest, rents and royalties.
- Paying dividends, including deficiency dividends, avoids the tax.
Where it's tested
TCP: C Corporation Tax Compliance — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A corporation has taxable income before the NOL deduction of $600,000 and an NOL carryforward of $700,000 generated in 2022. What is the maximum NOL deduction?